Wednesday, 9 August 2017

"[Former finance minister Alistair Darling] said banks today were much better capitalised than in 2007 and regulators "more sharp and ready to intervene".

But he warned the next crisis was likely to come from "somewhere unexpected and from causes that haven't yet been identified".

"The biggest danger is complacency. And of course in a few years' time when institutional memories start to fade, and the people around have all gone and retired, then that's where the risk occurs."

There's no mystery at all, financial crises are caused by leveraged land speculation (or speculating in some other monopoly right or natural resource).

Doesn't everybody know this?

We can argue about how reliable the 18-year cycle is, or draw up a short-ish list of things other than land which have been behind certain credit bubbles, but that's just details.

All this "regulation" won't make the slightest bit of difference, banks' own capital was so dwindlingly small last time, it doesn't matter whether they've doubled it or trebled it, it is still dwindlingly small.

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He's also either lying or too stupid (probably the latter) to know that the banks are not at all better capitalised. On any rational measure they are worse capitalised. See http://www.cobdencentre.org/2017/07/are-bank-capital-requirements-really-ten-times-higher-than-before-the-crisis/ And there's a oad more analysis on the same theme.

I think Darling is a basically decent man who simply does not have a fucking clue.

There's another point. The bloody regulators did bloody well intervene before and leading up to the last crash. Arguably it was their flawed interventions based on their endemic ignorance and stupidity that precipitated the problem. As it will be the case the next time.

I agree with Lola and Mark that improvements to bank capital ratios have been negligible. Martin Wolf and Anat Admati (Stanford economics prof) advocate an approximately ten fold increase to about 25% instead of the present 3% of thereabouts.

Sundry Nobel laureate economists (e.g. Milton Friedman) advocated a 100% ratio: i.e. they argued that bank loans should be funded JUST via equity rather than deposits. The advantages of that are:

1. It’s plain impossible for any bank to fail.

2. A fundamental principle we normally adhere to is that it is no to the job of government to subsidise or support commerce, and if someone wants to deposit money at a bank and have the bank lend on their money, that person is engaging in a COMMERCIAL transaction.

3. It is precisely the fact of lending on deposits that enables private banks to create or “print” money. E.g. person A deposits £X at bank…bank lends on the money while still promising A that their £X is available. Lo and behold TWO people then have £X: A and the person the £X has been loaned to.Printing money is a subsidy of the printer, and subsidies reduce GDP.

"Bank deposits are sums of money that a bank, backed by considerable collateral, may choose to deposit in the holder’s account as a loan which requires repayment with interest. The money comes into existence when the bank creates the deposit,[5] and when the loan is paid off, the money disappears from the bank’s balance sheet. While a loan is effectively a cash advance provided by the bank to the customer, in the long term the effect of unrestricted creation of bank deposits (money) can lead to inflation in the markets into which that money is channelled, such as the property market through banks' mortgage lending."

@L We were reminded recently by the BoE that the commercial banks create money: " the majority of the money in the modern economy is created by the commercial banks making loans" but on this site there is an aversion to doing anything to stop the banks charging interest on money they have made out of thin air so some sort of regulation might be a weak fall-back measure.Ann Pettifor was on the midday TV news saying that the banks were well-regulated until 1971 after which things degenerated but other key dates appear on banking deregulation sites. George Brown has said that the Big Bang (from economic genius Margaret Thatcher) caused 2007.I am not sure you can expect LVT to take all the strain of "regulating" the money that gravitates towards landed investment.Why not organise money creation in the first place so people are fixed up with unearned income to buy products of robot factories (instead of, as now, trying to fix them up with unearned capital gains from property?)Does anybody know why Ann Pettifor should think 1971 the significant date? Sounds right: the Nixon shock was that year.

Ann says 1971 because that's the year when the post-war Bretton Woods agreement started to collapse when Nixon took the US dollar off the gold standard. Before that the dollar was pegged to gold and the other currencies were pegged to the dollar. After that the world currencies became purely fiat and, for the most part, were not pegged to anything.

D, there's no such thing as a gold standard, it is a con trick. Pegging is a bad idea, always makes things worse. Instead of saying $ was pegged to gold, you might as well say that price of gold was pegged to $ to realise that this is a bizarre form of price control, and that never works either.

As far as governments are concerned, the much derided fiat currencies actually work very well (if done properly).

@ Derek many thanks but I did mention the "Nixon shock" which is the term used on ,for instance, Wikipedia to denote Nixon's unilateral closing of the gold window and the onset of worldwide currency instability and "floating". In the UK the resulting inflation was blamed on the unions with only Enoch Powell protesting with high derision.( I wrote a letter to the Observer on this subject with quote from Powell publ 23.vii.17) 1971 looks like the moment when a putsch went in to destroy the successful post war mixed economy and its collective bargaining, full employment and house price stability.It is this right-wing revolutionary form of government that is falling apart now after years of bribing a majority with unearned, untaxed capital gains from merely living in your own house, (the subject of the Schedule A of Income tax before 1963).( I apologise for the extreme language but the present situation is extreme.)

DBC Reed, You say “Why not organise money creation in the first place so people are fixed up with unearned income to buy products of robot factories (instead of, as now, trying to fix them up with unearned capital gains from property?)”

Trouble with that idea is that once you give people money, it’s a bit difficult to control how they use it: e.g. stop them buying bigger houses / encourage them to buy something else. Indeed I see no reason to interfere with consumers’ buying choices to any big extent. Modern Monetary Theory and Positive Money very much go for the idea of giving the private sector whatever amount of money induces it to spend at a rate that brings full employment. (We aren’t quite yet at the stage where robots do absolutely everything.)

But having said that, I’m not implacably opposed to LVT or capital gains tax on owner occupied houses.

About one hundred years ago in the Great Forgetting that is British history, Major Douglas came up with many different ways of creating the demand for goods produced with very few workers (or not enough workers with the wages to pay for all the goods produced.)It was not just a matter of nationalising the country's credit and doling it out in equal amounts to all citizens to fill the gap between the potential supply of goods and existing incomes (National Dividends).One way was, I think, a discounted price mechanism whereby goods were sold at cost price and the ticket of sale was sent to a government agency who sent a profit margin to the manufacturer.That way the punters didn't lay their hands on the so-called Social Credit.Likewise the Gesell scheme of stamp money was also ludicrously simpleeven crude with money designed to do more work by whizzing round the system before the notes lost value completely.This increased money supply by artificially stimulating velocity.It was not possible to buy property with these notes. The Chiemgauer is a successful modern revival of this concept.Nobody is interested in any of this, preferring to cleave to the 1971Nixon Shock fallacy that run away inflation occurs when you have collective bargaining (not because Nixon ended what was left of the Gold Standard).